Palmitoyl protein thioesterase (PPT) is an enzyme that removes palmitate residues from various S-acylated proteins in vitro. We recently identified mutations in the human PPT gene in patients suffering from a neurodegenerative disease in childhood, infantile neuronal ceroid lipofuscinosis (INCL), with dramatic manifestations limited to the neurons of neocortical origin. Here we have expressed the human PPT cDNA in COS-1 cells and demonstrate the lysosomal targeting of the enzyme via the mannose 6-phosphate receptor-mediated pathway. The enzyme was also secreted into the growth medium and could be endocytosed by recipient cells. We further demonstrate the disturbed intracellular routing of PPT carrying the worldwide most common INCL mutation, Arg122Trp, to lysosomes. The results provide evidence that INCL represents a novel lysosomal enzyme deficiency. Further, the defect in the PPT gene causing a neurodegenerative disorder suggests that depalmitoylation of the still uncharacterized substrate(s) for PPT is critical for postnatal development or maintenance of cortical neurons.